UNDP’S RESPONSE TO THE GLOBAL

ECONOMIC CRISIS
MALAYSIA
1. The Transmission of the Global Financial Crisis to Malaysia’s Real
Economy and Its Impact
While the Malaysian financial sector is relatively well regulated partly as a consequence of the
measures taken in the aftermath of the Asian financial crisis ten years ago, the country’s real economy
of goods and services remains one of Southeast Asia’s most vulnerable to the crisis.

The global financial and economic crisis has been transmitted to Malaysia’s ‘real economy’ through
three important channels – export demand contraction, commodity price declines of palm oil and oil,
and a significant expected reduction in Foreign Direct Investment (FDI) inflows in 2009 of up to 50%.

The effects of the global crisis on Malaysia began to be tangibly felt from October 2008 when
industrial production first contracted and exports fell. As a result, GDP growth abruptly declined to 0.1
per cent in the fourth quarter of 2008. Exports, the economy’s lifeblood, contracted by 14.9 per cent in
December 2008 and by 28.3 per cent in January 2009, compared with the same month one year
earlier.

Malaysia’s export-oriented industries, especially electronics manufacture on which it is significantly

dependent have been especially hard-hit. The industrial production index fell by approximately 20
percent in January 2009. The government earlier this year revised its projected 2009 GDP growth rate
to between a positive one percent and negative one percent for 2009, a significant downgrade from
its previous 4th Quarter 2008 forecast of a positive 3.5 percent. The government has recently indicated
that the GDP forecast will be further revised at the end of May in light of weaker-than-expected
exports in the 1st Quarter of 2009. It is now more than likely that Malaysia will suffer a technical
recession in the first half of 2009.

Malaysia’s high dependence on food imports has translated into higher food costs for a large
proportion of the population, particularly the urban poor and those in rural areas who are net
purchasers of food. The lower purchasing power of many households, especially poorer ones, means
that there is a real risk that some families could fall back below the poverty line while those already
below it will need significant additional help. Poorer women and children are particularly at risk since
higher food prices can worsen their already precarious nutritional status.

Overall, it is now clear that the severity of the crisis’ impact in Malaysia is of great and increasing
concern to both the government and the country’s population because it seems likely that it will be
deep and protracted.
2. The Malaysian Government’s Response to the Crisis
To support the economy in the face of the deepening crisis, Malaysia’s central bank cut its policy rate
decisively, from 3.5 percent in November 2008 to 2 percent in February 2009. In addition, in November
2008, the government announced a fiscal stimulus package of Malaysian Ringgit (RM) 7 billion (US
$1.96 billion or 1 percent of GDP). However, there have been implementation delays and the stimulus
was not seen as adequate or appropriately targeted.

As a result, in March 2009, the government unveiled a second and much larger stimulus package of
RM 60 billion (US $16.2 billion or 8.6 per cent of GDP) to be implemented over 2009 and 2010.
However, the fiscal injection included in it is only RM 15 billion over the 2 year period. In addition, RM
25 billion is allocated as bank guarantee funds, RM 10 billion as equity investment, RM 7 billion for
private finance initiatives and off-budget projects, and RM 3 billion for tax incentives. Of the total, RM
2 billion will be used to fight unemployment and increase job opportunities.

Since there is widespread concern that the second stimulus package does not include direct and
immediate assistance to the most vulnerable population groups and those with the highest
propensity to consume, the government has also moved to widen the social safety net by loosening
restrictions for eligibility and increasing the budgetary allocation to RM 800 million, compared with
only RM 300 million in 2007 and 2008. Targeted to benefit 110, 000 families nationwide, doubling the
number of eligible households from 54, 000 previously, the social safety net programme is premised
on direct participation from several federal ministries.

3. UNDP’s Role in Assisting Malaysia Address Both the Short- and Long-Term
Implications of the Crisis
Supporting Empirical Analysis of the Crisis’ Transmission to the Real Economy

UNDP with input from other members of the UN Country Team (UNCT)is currently supporting a study
which will provide a comprehensive assessment of the impact of the global financial and economic
crisis in Malaysia. It will especially prioritize the ‘real’ Malaysian economy, with a special focus on
human development impacts and issues, with a view to empirically identifying the transmission
channels involved and their effects on specific sectors of the economy, using human development
indicators. The study will also provide an assessment of the two stimulus packages announced by
Government. It is hoped that both parts of the study will inform the Government’s short-term crisis
response policies and strategies and help senior policy makers better target measures to mitigate the
crisis’ short-term negative effects while at the same time supporting a recovery. The study is expected
to be completed by mid-2009.

Fostering Public Dialogue and Debate on the Impact and Implications of the Economic Crisis in
Malaysia

In January 2009, UNDP Malaysia and other members of the UNCT initiated a series of public events
both to deepen the public’s understanding of the impact and implications of the crisis for the country
and to encourage dialogue among key stakeholders. The first event in mid-January 2009 was a UNCT
and Institute of Strategic and International Studies (ISIS) co-hosted public lecture entitled, ”The Global
Financial Crisis and the Economic Slowdown: Implications for S.E. Asia and the United Nations
Response." The lecture was delivered by Dr. K.S. Jomo, Assistant Secretary-General for Economic
Development in the United Nations’ Department of Economic and Social Affairs (DESA), who is also a
member of the President of the UN General Assembly’s Commission of Experts on Reform of the
International Monetary and Financial System. The event was attended by about 250 guests from
foreign missions, government, business, academia and civil society. In May, the UNCT organised a
follow up public lecture which examined the impact of the global financial and economic crisis on
women and families. This was delivered by Dr. Noeleen Heyzer, Under Secretary-General and
Executive Secretary of UN ESCAP. The event was attended by over 200 guests from foreign missions,
government, business, academia and civil society.

High Level Engagement with the Malaysian Government on the Restructuring of the Malaysian
Economy

UNDP is engaging senior policy makers in the Economic Planning Unit in the Prime Minister’s
Department and the Ministry of Science, Technology and Innovation on a number of important,
strategic forward-looking policy initiatives that seek to promote new sources of sustainable and
equitable growth and income, and build human capital through the country’s next five-year
development plan, the 10th Malaysia Plan (2011-2015).